Barings: Development of a Disaster

Abstract

The sudden collapse of Barings Bank in February 1995 was unexpected, shocking the bank’s management, regulatory authorities and the international banking industry. However, should the failure have come as such a surprise? As the formal inquiry into the events surrounding the collapse found, the seeds of a potential ”disaster” had been sown a number of years before the failure and warning signs had been ignored by senior management. In an often cited work in decision literature, Turner identified a number of features that are common to the development of “man made” disasters, many of which are apparent in events leading up to the failure of Barings. This paper reviews the Barings case using Turner’s framework and identifies some lessons for banks in creating a risk management organisation.